Today I spoke about CBO’s latest 10-year budget and economic projections at an event hosted by the Concord Coalition. Those projections incorporate the assumption that current laws (those in effect as of January 12, 2021) will not change.
In the projections, as expanded vaccination reduces the spread of COVID-19 and the extent of social distancing declines, real (inflation-adjusted) gross domestic product (GDP) grows by 3.7 percent in 2021, returning to its prepandemic level by the middle of the year. Over the 2021–2025 period, growth averages 2.6 percent, and real GDP surpasses its potential (that is, its maximum sustainable) level in early 2025. The unemployment rate gradually declines through 2026, and the number of employed people returns to its prepandemic level in 2024.
Over the 2026–2031 period, real GDP growth averages 1.6 percent in CBO’s projections. That average growth rate is lower than the long-term historical average, primarily because the labor force is expected to grow more slowly than it has in the past. Also, the interest rate on 10-year Treasury notes is projected to rise gradually, reaching 3.4 percent in 2031.
The federal budget deficit for 2021 is $2.3 trillion in CBO’s projections. At 10.3 percent of GDP, that deficit would be the second largest since 1945, exceeded only by the shortfall recorded last year, which equaled 14.9 percent of GDP. Those deficits, which were already projected to be large by historical standards before the onset of the 2020–2021 coronavirus pandemic, have widened significantly as a result of the economic disruption caused by the pandemic and the enactment of legislation in response.
In the projections, annual deficits average $1.2 trillion a year from 2022 to 2031 and exceed their 50-year average (3.3 percent of GDP) in each of those years. They decline to 4.0 percent of GDP or less from 2023 to 2027 before increasing again, reaching 5.7 percent of GDP in 2031. By the end of the period, both primary deficits (which exclude net outlays for interest) and interest outlays are rising.
Phillip L. Swagel is CBO’s Director.